Airlines bound for profitability

he Middle East's airlines will make a collective profit for the first time in five years, the International Air Transport Association (IATA) has forecast.

A delegate uses his mobile phone during a meeting of the International Air Transport Association in Berlin.
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BERLIN // The Middle East's airlines will make a collective profit for the first time in five years, the International Air Transport Association (IATA) has forecast. The outlook for a slim profit of US$100 million (Dh367.3m) is an improvement from the trade group's forecast in March of a $400m total loss this year for the more than two dozen carriers in the region.

The turnaround is being attributed to the region's faster economic growth and a shift of global long-haul traffic to Gulf airports. And it mirrors the global trend as IATA now expects airlines worldwide to post earnings of $2.5 billion this year, compared with the loss of $2.8bn it had forecast just three months ago, as the business climate improves. "The global economy is recovering from the depths of the financial crisis much more quickly than could have been anticipated," said Giovanni Bisignani, the director general and chief executive of IATA, which represents 230 airlines carrying 93 per cent of international traffic.

"Airlines are benefitting from a strong traffic rebound that is pushing the industry into the black. This is the first global profit since 2007 and it is reason to celebrate. But with a profit margin of 0.5 per cent, it will be a modest party and we face real downside risks." The good news underscores a Middle East paradox: while the region boasts one of the fastest growth rates in air travel, its airlines have failed to convert this into sustainable profits.

Peter Hill, the chief executive of Oman Air, has said the region's growth has resulted in increased competition from regional and international carriers and this has affected prices. "The passenger numbers are coming back but the competition is still very intense and people are not making enormous amounts of money over the seats they are selling," Mr Hill said. One of the airlines looking aggressive is Turkish Airways. Temel Kotil, the carrier's president and chief executive, said it wanted to make a "new highway" between the Middle East and Europe through its base in Istanbul.

The company is increasing its ticket sales to and from the Middle East by between 20 and 30 per cent a year, and could offer the most competitive ticket prices after taking on new aircraft and offering discounts to fill them quickly. "We have load factor problems, so it is not good for airlines but it is good for passengers," Mr Kotil said. Such increased competition is being offset somewhat as Middle East residents resume foreign travel after the H1N1 health scare of last summer, said James Hogan, the chief executive of Etihad Airways, who agreed with IATA's note of cautious optimism.

"What is pleasing to me is that people are booking in the Middle East. Last year it didn't happen, unfortunately," Mr Hogan said. "And globally, with the exception of Europe, we are seeing the recovery kick in." The Middle East's results would have been deep in the red were it not for two of the most profitable airlines in the region - Emirates Airline and Air Arabia - which together posted profits of more than $1bn last year.

Peter Harbison, the executive chairman of the Centre for Asia Pacific Aviation, said the Middle East suffered from some protectionist regimes that propped up flag carriers with outdated business models and inefficient structures. Some of the region's carriers are "traditional full-service, high-cost carriers that [have] survived until now on protectionism", Mr Harbison said.